government spends more and reduces room for a fall in the Selic rate

Even with inflation showing signs of a truce, the expansionist tendency of fiscal policy limits the space for the reduction of interest rates. Public administration consumption expenses grew 0.3% in the first quarter compared to the previous one, according to the IBGE. It was the third straight move higher.

The Central Bank today defines the basic interest rate (Selic), and there are arguments both for reducing it and for maintaining it. The market expects to maintain the current level of 13.75% per year, with cuts starting in August.

XP Investimentos highlights in a report that the new fiscal framework allows expenses to grow by around 2.5% in real terms (inflation already discounted) in 2024 and 2025, after an increase of around 20% between 2021 and 2023. keep final demand and public debt dynamics under pressure, a scenario consistent with high interest rates in the coming years”, highlights the brokerage.

The company points out that the trajectory for public accounts should be negative in the coming months, with a decline in commodity prices and loss of traction in economic activity affecting government revenue. On the expenditure side, the brokerage recalls that the increase in the minimum wage and the salary adjustment for civil servants began to weigh on public accounts as of May.